4.4.2  Procurement and the project pipeline

The methods used to procure infrastructure projects will directly affect the final construction and operating cost of each major piece of infrastructure.

It is widely accepted that the presence of an observable long-term pipeline of up-coming projects is a sure way of providing keen industry and professional interest in assessing the next project on the pipeline, and ensuring competitive bidding for the work involved.

The general absence of such a reliable pipeline of infrastructure works in the last decade has meant that the ability to plan efficiently for future work has been materially reduced. The optimal allocation of both human and financial resources for each project is unlikely in an environment where project planning and procurement is sporadic. Poorly sequenced projects can also lead to sub-optimal outcomes on a national level.

Current processes for the procurement of new infrastructure are seen as challenging by many industry players. The cost of tendering remains high in Australia, primarily driven by design costs, which can account for roughly 50 per cent of total 'bid' costs.115 These costs are driven by certain government procurers requiring significantly more project development work by bidders than is required elsewhere in the developed world.

Action needs to be taken by governments to make major project procurement more efficient. This includes implementation of best practice in procurement, for example:

■  designing procurement to align with market capability, capacity and appetite;

■  undertaking comprehensive procurement planning in consultation with the market, and communication of accurate and sufficient project and procurement details;

■  minimising requirements for non-material documentation; and

■  establishing appropriate time metrics for procurement processes.116

Other issues with current procurement processes have included: overlapping and relatively time-consuming environmental assessment processes at the national and jurisdictional levels that add to costs; and uncertainty and, in some cases, unreasonable conditions of approval adding to costs of providing infrastructure.

Barriers to competition and efficiency also exist in the procurement of Public Private Partnership (PPP) projects in Australia.117 The following barriers to competition in PPP procurement have been identified:

■  a limited pipeline of projects that is uneven in nature;

■  a perceived lack of consistent commitment to PPPs across all Australian jurisdictions;

■  the magnitude of bid costs; and

■  a lack of coordination of the timing of projects coming to market across states and territories.

The Productivity Commission has made the following recommendations to lower these barriers:

■  announcement of potential future PPP projects as early as possible;

■  more consistent and rigorous application of the National PPP Guidelines on the criteria for determining whether PPP procurement is appropriate for a project;

■  continued commitment and leadership from politicians and senior officials;

■  continued focus on improving national coordination of the release of projects to the market;

■  eliminating the requirement for information that is neither required to evaluate bids nor required for certainty at contractual close;

■  recruitment, development and retention of experienced, high quality, government project team members;

■  ensuring governance structures empower the project team to deliver the project while enabling effective and efficient decision making; and

■  using more than one bid stage only when absolutely necessary, such as when market conditions have changed or when no bidder has made an acceptable proposal.118

Infrastructure Australia will make recommendations on the delivery of a more comprehensive future pipeline of nationally significant projects as part of the up-coming Australian Infrastructure Plan.

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115.  Productivity Commission (2014a), pp. 452-453

116.  Infrastructure Australia (2012d), p. 31

117.  KPMG (2010), p. 24

118.  Productivity Commission (2014a). The National PPP Guidelines are available at http://www.infrastructureaustralia.gov.au/public_private/